Is Africa’s economic integration beckoning us to come closer?

Our rate of economic growth these days is not quite reassuring. Moody’s has preferred to pick up the rate of 3.8% and not go for the higher forecasts in the 5% range.

In simple words, we need to consolidate the scope of our growth to move out of the stagnating range we’ve seen these years. How to do that? Simply by working on new opportunities which present themselves from time to time.

Tripartite Free Trade Area

Many may not have noticed it but here is one such new opportunity. Following nine years of discussions, with the help of the African Union, heads of states of East Africa signed up in Egypt on 10th June Wednesday last, a free trade agreement called Tripartite Free Trade Area (TFTA), binding African countries from South Africa down South to Egypt in the North into a more or less barrier-less free trade zone.

The Tripartite Free Trade Area puts together three regional economic groupings, the East African Community (EAC), the Common Market for Eastern and Southern Africa (COMESA) and the South Africa Development Community (SADC). It involves 26 countries of the region with a total population of 625 million and combined GDP of $ 1.3 trillion. Mauritius is a member of both the COMESA and the SADC.

The TFTA is expected to create huge trade opportunities by eliminating trade tariffs, reduce the cost of doing business, facilitate the movement of people and the flow of FDI across the region, and iron out differences among the three existing regional groupings. One could hope that it might prove to be a precursor of a common market spanning over the whole Continent eventually.

Breaking barriers to common economic progress

It is a happy coincidence that this agreement is coming in the footsteps of another long-sought regional initiative, notably the agreement reached for the first time to make the Indian Ocean Commission Airlines join hands for a common purpose to promote the region’s better connectivity in the quest for our specific advantages. That was achieved last week partly because we have a good pilot over there, Jean Claude de l’Estrac, the Secretary-General of the IOC, a chaser after substance who executes more and speaks less.

It is always difficult to make an economic agreement work out to its potential in Africa – but also elsewhere — and it takes time before differences are ironed out and things start falling effectively into place. It is gratifying therefore that the 26 countries having achieved different levels of development — which doesn’t make it that easy to move either goods and services or investments across borders — have come together under the Tripartite Free Trade Agreement. No matter how quickly or slowly they implement the decisions taken, it is important to push up things a bit at a time when even the South African economy, the biggest of the region, is faced with grim economic prospects.

In view of internal problems such as insufficient or poor internal infrastructure, low level of industrial activity and little economic integration, firms of relatively small size across the continent and other things like red tape, inefficiency and corruption, Africa has failed to get its rightful representation at the global level. It has more often been a supplier of raw materials to advanced economies than an exporter of finished products. As a result, intra-regional trade has not progressed at the pace it should have; the whole continent accounts for a barely 3% share of global trade. A paltry performance.

The low level its presence in global trade is, cannot help. Besides, this share should be considered also against the backdrop of a persistent slow pace of growth of global trade itself: +2.8% in 2014, +2.4% on average over the past three years to 2014 and forecast +3.3% for 2015. Africa is having a small share of a cake that is refusing to grow fast enough. There is need to do something about it.

Mauritius should be part of effort to uplift Africa’s industrial capacity

A way forward against such a background would be for Africa to increase its intra-African trade fast enough. As the new TFTA triggers off a bigger scale of intra-African trade, benefits will accrue to those engaging firmly in the new adventure. Mauritius cannot afford not to be there if, in the process, Africa were to thereby land into a stronger position in terms of a bigger share in global trade once the international economic downturn gives way.

This new free trade agreement, the TFTA, of which we are part, opens up challenges for us. Economists believe that those among the countries to the agreement which industrialize themselves better will reap the advantages of the scope being created. Africa is badly in need of more industrialisation and scale at this stage to expand its economic scope from within. It is also in need of a more diverse base of economic production of finished goods than what obtains currently. A lot of nudging up is necessary. We can participate in this enterprise.

Elimination of tariffs under the TFPA will help economies of Africa coming closer together. But it is the development of local production capacity that will make a difference on the way forward in the new free trade agreement context signed up this week. Mauritius could share in this in exactly the same manner as investors from the Far East and even Europe came over to our place four decades back to grow our textile and garment sector from our zero base at the time. For this, we will have to partner with others having the required know-how and the willingness to invest.

Mauritius should develop its strategy for Africa

A country like Mauritius doesn’t have enough resources of its own, nor is it necessary that it should. It can team up with others who are competent in the specific fields of potential economic expansion in Africa. Countries like Ethiopia, Angola, Mozambique, South Africa and Egypt have significant potential to add up by producing finished products for exports to countries within Africa. Reckoning this, we should brainstorm to find out the best sustainable strategy to adopt to share in the new scope being created under the TFTA.

Will we team up with entrepreneurs from advanced countries to make up openings for our enterprises in this new adventure in Africa? What should we do to get a lasting presence in economic development over the continent? Which is the most suitable place to begin with? What should be our critical inputs to achieve such an objective?

Which are the most suitable sectors to venture out into? Who should do the market research for our enterprises? Is targeting the consumer market enough? Can we go along with qualified resources from other friendly countries to build up much needed infrastructure, including soft infrastructure in this new and large market? Will we finally give life to our much publicized role as the bridgehead between Africa and Asia in building up industrial substance in promising countries on the African continent? Should the financial sector lead some of the projects?

This is not an exhaustive list. But it indicates the sort of things we could do to set our foot firmly on the Continent. We cannot keep talking ourselves into becoming the logistics hub for China’s African ventures, for example, a role that Dubai has already taken up since long, thanks to its setting up of specialized “free zones” in Jebel Ali.

There are opportunities

Consider the fact that intra-African trade is weak at 12% only of total African trade today. In contrast, intra-Asian trade is 55% of total Asian trade and the figure is 70% for Europe. Clearly, there is a lot of scope to grow up the African share on internal trade. This in itself is a promising enterprise. As African countries break away from their limited ability to trade within their own countries, this will act as the spur to grow exportables within and from the Continent. Opportunity will thus be created to engage in trade with other global trade blocs. This will marry beautifully with our compulsive mission to export to the outside world.

The TFTA shows the way forward for Mauritius. We will have plenty of scope to go out for a bigger world outside. But we cannot do it by relying on ourselves alone. We’ll need to embark on another bigger regional and global adventure with the help of the best resources we could garner from partners who trust us as meaning business and being fully predictable in our decision-making processes. We should muster all our strength to go for this new adventure.